But not before slack in Canada’s economy is absorbed, he says
The Bank of Canada (BOC) is getting closer to raising interest rates – but not until the slack in the country’s economy is absorbed, according to BOC governor Tiff Macklem.
In an op-ed published in the Financial Times, Macklem said that his team is still focused on controlling inflation even as risks from supply disruptions and higher energy prices continue to pose challenges.
Read more: Will inflation force the Bank of Canada’s hand on interest rates?
“For the policy interest rate, our forward guidance has been clear that we will not raise interest rates until economic slack is absorbed,” Macklem said in his op-ed. “We are not there yet, but we are getting closer.”
Macklem also added that the BOC’s flexible framework was more than capable of adjusting to changing dynamics in the economy.
“While our analysis continues to indicate that these pressures will ease, we have taken them into account for the dynamics of supply and demand,” said Macklem. “What our resolve does mean is that if we end up being wrong about the persistence of inflationary pressures and how much slack remains in the economy, we will adjust.”
Figures from Statistics Canada found that the country’s inflation rate hit an 18-year high in August – and former BOC governor Stephen Poloz warned in October that getting to the central bank’s target of 1% to 3% will not be a straight line.
“So many things tugging in opposite directions. You’d expect that the net effect of all these things will be a question mark for some time,” he said.
“I really don’t have any idea how long [inflationary pressures] may take to clear up,” Poloz told BNN Bloomberg in October. “You know, it’s like when you’re in a traffic jam in the morning: you don’t really know how long it’s going to take to clear and even when it is cleared, it takes a while to get started up again in a nice rhythm as you’re used to. So, hard to predict that.”
